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China's Monetary Stimulus Fails to Boost Loan Demand Despite Rate Cuts
China Beige Book, a private survey conducted between mid-April and mid-April 2023 with over 4,600 respondents, suggests that China's monetary stimulus last year had little effect on boosting loan demand in the second quarter. This is despite the fact that borrowing costs for businesses were lower than they were in the previous year. The survey's findings cast doubt on the effectiveness of the rate cuts implemented by the People's Bank of China in August and mid-June.
Limited Impact of Rate Cuts on Growth
According to Leland Miller, the chief executive of China Beige Book, analysts have been promoting the idea that Beijing has no choice but to implement significant monetary easing. However, the survey's results show that the People's Bank of China's efforts in this regard have so far not been successful. It seems that the rate cuts have had limited impact on spurring growth in the Chinese economy.
Weaker Than Expected Economic Growth
The weaker-than-expected economic growth in April and May has intensified calls for more decisive monetary measures to support the economy. Major Wall Street banks, such as Goldman Sachs, Bank of America, UBS, and Nomura, have recently revised down their China growth projections.
China Beige Book's quarterly survey, which involved 4,604 respondents in China, revealed that national borrowing in the country fell to its lowest level since 2010. The demand for loans was even more lackluster than it was in the previous year. Additionally, although credit conditions have improved for the property sector, residential realtors reported declines in sales and prices.
Optimism for Second-Quarter Growth
Despite these challenges, China Beige Book still expects second-quarter growth in China to be stronger than the first. The survey's data shows that manufacturing, retail, and services sectors have reported quarter-on-quarter revenue acceleration. Chinese Premier Li Qiang has also expressed optimism about China's economic growth.
The survey provides an early look at the state of China's economy before the release of official government data in mid-July. It suggests that despite the challenges, China's economic rebound is still ongoing. However, there are concerns about weak prices and preserving global market share in a global economic downturn.
Market Expectations and Chinese Yuan
The survey highlights that market expectations for the Chinese economy's recovery may have been overly optimistic. Just as the current market pessimism on China could be overblown, China Beige Book warns against the anticipation of major stimulus when it may not occur. The weakening Chinese yuan, which hit an eight-month low against the U.S. dollar, has also added to the challenges faced by the Chinese economy.
Conclusion: Implications for New Businesses in China
The findings of the China Beige Book survey on China's monetary stimulus and loan demand have several implications for new businesses operating in the country.
1. Limited Impact of Monetary Stimulus: The survey suggests that the monetary stimulus implemented by the People's Bank of China has had limited success in boosting loan demand and spurring economic growth. This indicates that new businesses relying on increased borrowing and favorable credit conditions may not experience the expected benefits.
2. Weaker Economic Growth: The weaker-than-expected economic growth in China, coupled with major Wall Street banks revising down their growth projections, creates a challenging environment for new businesses. The lower demand for loans and declines in sales and prices reported by the survey further emphasize the economic difficulties faced by businesses in the country.
3. Optimism for Second-Quarter Growth: Despite the challenges, there is optimism for second-quarter growth in China. New businesses in sectors such as manufacturing, retail, and services may witness revenue acceleration during this period. Chinese Premier Li Qiang's positive outlook also provides some hope for a rebound in the economy.
4. Caution for Market Expectations: The survey warns against market expectations that may be overly optimistic. New businesses should approach the Chinese market with a realistic perspective, considering the challenges posed by weak prices and preserving global market share in an uncertain global economic downturn.
5. Impact of Weakening Yuan: The weakening Chinese yuan adds another layer of complexity for new businesses. It increases the cost of imports and has implications for businesses involved in international trade. New businesses should carefully consider currency fluctuations and their effects on their operations.
In summary, new businesses entering the Chinese market should closely monitor the effectiveness of monetary stimulus, adapt to weaker economic growth, maintain a realistic outlook, and carefully navigate the impact of a weakening yuan. By being aware of these factors, businesses can make informed decisions and better position themselves to thrive in the challenging Chinese business landscape.
Article First Published at: https://www.cnbc.com/2023/06/30/china-beige-book-second-quarter-recovery.html